Off-price retailer, Ross Stores Inc. (ROST) is on track with its store expansion plans as it opened 30 new stores in 17 different states during the months of June and July, which includes 23 Ross Dress For Less and 7 dd's DISCOUNTS stores.
With 30 stores opened over the period the company has resolutely exceeded its plan to inaugurate 29 stores (22 Ross Dress For Less and 7 dd's DISCOUNTS) in the second quarter. Moreover, this represents a significant progress toward the company’s plan of opening 95 stores (75 Ross Dress For Less and 20 dd's DISCOUNTS) in fiscal 2014.
The company’s store growth plan is a part of its ongoing expansion strategy that focuses on increasing its presence in existing markets while penetrating deeper into the newer Midwest region. The latest store openings in July included 8 Ross Dress for Less stores, that boosted the company’s presence in the Midwest, while the 7 dd’s DISCOUNTS stores marked its entry into 3 new states namely — New Jersey, North Carolina and Oregon.
Including the latest store openings, Ross Dress For Less now operates 1,194 stores in 33 states, the District of Columbia and Guam, while dd's DISCOUNTS now operates 144 locations in 13 states.
Looking ahead, we remain confident of the company’s growth potential and believe that it can successfully attain its target of expanding store base to 2,500 over the longer term. This will comprise 2,000 Ross Dress For Less and 500 dd’s DISCOUNTS stores.
Additionally, we believe the company is underpenetrated in the 33 states it serves and has the possibility to substantially grow its store base in these markets. Further, management remains on track to increase square footage by about 6%—7% annually, aiming to maintain its pace of opening about 70 stores per year.
Though we are optimistic about Ross Store’s long-term growth prospects, the company currently holds a Zacks Rank #4 (Sell) due to disappointing performance in the first quarter of fiscal 2014. In the quarter, the company’s top and bottom line results fell short of expectations while it improved year over year.
Moreover, the company provided a cautious outlook for the upcoming quarter as well as for fiscal 2014 due to an uncertain economic environment and a distressed retail market, along with its strong multi-year top and bottom line comparisons. Thus, we remain apprehensive about the company’s near-term performance.
Better-ranked stocks in the retail-discount space include Big Lots Inc. (BIG) and Burlington Stores Inc. (BURL), both carrying a Zacks Rank #2 (Buy). Another retailer performing well in the related industry is Citi Trends Inc. (CTRN) with a Zacks Rank #1 (Strong Buy).
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